By TIOL News Service

BANGALORE, MAY 31, 2018: THE ISSUE BEFORE THE COURT IS - Whether it is open for the Commissioner to re-examine the assessee's claim by invoking its revisonary jurisdiction u/s 263 even if, such a claim was already discussed and concluded by both the AO and the Appellate Commissioner. NO IS THE ANSWER.

Facts of the case:

The assessee, a partner in its partnership firm run in the name and style M/s. SLV Housing Development Corporation. The firm was engaged in the business of purchasing agricultural lands and convert them for non-agricultural purpose. The assessee's wife Smt. Bhagya Nagaraj and his father Mr. Hanumappa were also associated as partners in the said firm. A search operation was initiated at the assessee's premises after which, notice u/s 153A was issued for the AYs 2008-09 and 2009-10. Accordingly, the assessee returned income for the relevant AYs. During assessment proceedings, the AO noted that the assessee had claimed expenses for developing the layout at the agricultural property purchased at Kaggalipura, Bengaluru under three different heads viz., development expenses, labour charges and work in progress. The said agricultural property was then sold to one M/s. Brigade Enterprises. Accordingly, the assessee was asked to furnish requisite details of such expenses. In reply, the assessee had produced the list of names and addresses of parties to whom the amount was paid along with the PAN numbers, bills and vouchers. However, the AO treated such sum as assessee's undisclosed income and proceeded to make additions in respect of AYs 2008-09 and 2009-10 respectively.

When the matter reached before the Appellate Commissioner, the additions to the extent of only Rs.12,50,000/- was confirmed for the AY 2008-09 and in respect with the AY 2009-10, addition of Rs.2 Crores was confirmed and rest was ordered to be deleted. Nevertheless, by exercising revisionary powers u/s 263, the Revisional Commissioner proceeded held that the properties purchased by the assessee at Kaggalipura and the subsequent sale did not tally in respect of both the assessment orders, and hence, directed to reconsider the entire materials. It was further found that the development expenses consisting of labour charges, work in progress, had to be added for the AY 2008-09. Similarly, the Revisional Commissioner ordered to make addition for both the AYs on the ground that the cheque payments and TDS made for claiming expenditure had to be verified. When the matter was placed before the Tribunal, the order passed by the Revisional Commissioner was set aside.

High Court held that,

++ the Revisional Authority holds that labour charges, work in progress should be disallowed. In our view, when the development expenses as considered by the AO were the subject matter of appeal and the CIT(A) on the judicial side has found that for both the AYs, the expenses incurred had to be accepted by disallowing the claim of Rs.50 lakhs for the AY 2008-09 and Rs.2 Crores for the AY 2009-10, question of Commissioner of Income Tax (Administration) exercising revisional jurisdiction u/s 263 to once again examine the very same issue so as to disallow the labour charges and work in progress does not arise, as the order of assessment made by the AO got merged with the order of the Appellate Commissioner. The Revisional Authority cannot, by acting u/s 263 interfere and upset the order passed by the Appellate Commissioner. If the Revenue was aggrieved by the order of the Appellate Commissioner, the only remedy was to file an appeal to the Tribunal or to re-open the assessments;

++ the Counsel for the assessee is right and justified in placing reliance on the judgment of this Court in the cases of VARMA INDUSTRIAL LTD. and SRI SALIL PUNOOSE. The law laid down in the said two judgments applies to the facts of the present case because the Appellate Commissioner has considered the matter while concurring with the order passed by the AO, and therefore, the order of the AO stood merged with the order of the Appellate Commissioner. In such circumstances, the same question cannot be re-opened by the Revisional Authority exercising power u/s 263;

++ it is the case of the assessee that during the AYs 2005-06 to 2009-10, he had purchased 63 acres 20 guntas of land at Kaggalipura village. The said properties were transferred to M/s. Brigade Enterprises under registered sale deeds; consideration for purchase of these properties was invested to an extent of 50% by the assessee and the balance 50% was invested by M/s. Canara Housing Development Corporation. The AO has accepted the payments made for purchase of lands from agriculturists and the sale of lands to M/s. Brigade Enterprises as having been duly accounted for during the various AYs. When the AO scrutinized the returns for the AYs 2008-09 and 2009-10, he considered the purchase of lands from villagers and thereafter sale of the same to M/s. Brigade Enterprises. He has dealt with the same in the assessment order and has proceeded to arrive at a conclusion that for AY 2008-09, there was unexplained income of Rs.1,25,66,700/- and for the AY 2009-1-0, there was unexplained income in a sum of Rs.1,92,72,383/-. He has thus proceeded to treat these to items as undisclosed profit for the respective AYs;

++ the assessee has challenged this order by filing appeal before the Appellate Commissioner. After examining the legality and correctness of the order passed by the AO, the Appellate Commissioner has held that the addition made by the AO regarding unexplained income was not justified in view of the evidence furnished by the assessee. Hence, the Appellate Commissioner ordered for deletion of the additions made by the AO, as a result the conclusions regarding purchase price paid for acquiring the lands and the sale proceeds received by selling the lands stood concluded as per the order of the Appellate Commissioner. The order passed by the AO got merged with that of the Appellate Commissioner for both the AYs. Therefore, there was no scope for the Revisional Commissioner to exercise jurisdiction u/s 263 to proceed to re-examine the purchase made by the assessee in respect of the lands in question. The Revisional Commissioner had no justification to add cost price in a sum of Rs.2,71,13,658/- stating that it pertained to sales made for the subsequent year. He also erred in directing the AO to re-examine the purchase price of the lands. As rightly contended by the Counsel for the assessee, the conclusion reached by the Commissioner while exercising revisional jurisdiction tantamounts to directly interfering with the conclusions reached by the Appellate Commissioner. Such power of the revisional authority cannot be conceded to enable him to interfere with the orders passed by the Appellate Commissioner in view of the doctrine of merger. Hence, it has to be held that the Revisional Commissioner acted without jurisdiction in passing the said order.

(See 2018-TIOL-1037-HC-KAR-IT)